Posted on 08/17/2010 2:43:45 AM PDT by Zakeet
The United States is running out of time to get its budget and trade deficits under control. Despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned a New York Times column, “Welcome to the Recovery.”
As John Williams (shadowstats.com) has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation. Warnings by Williams, Gerald Celente, and myself have gone unheeded, but our warnings recently had echoes from Boston University professor Laurence Kotlikoff and from David Stockman, who excoriated the Republican Party for becoming big-spending Democrats.
It is encouraging to see some realization that, this time, Washington cannot spend the economy out of recession. The deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.
However, the solutions offered by those who are beginning to recognize that there is a problem are discouraging. Kotlikoff thinks the solution is savage Social Security and Medicare cuts or equally savage tax increases or hyperinflation to destroy the vast debts.
Perhaps economists lack imagination, or perhaps they don’t want to be cut off from Wall Street and corporate subsidies, but Social Security and Medicare are insufficient at their present levels, especially considering the erosion of private pensions by the dot com, derivative and real estate bubbles. Cuts in Social Security and Medicare, for which people have paid 15 per cent of their earnings all their lives, would result in starvation and deaths from curable diseases.
Tax increases make even less sense. It is widely acknowledged that the majority of households cannot survive on one job. Both husband and wife work and often one of the partners has two jobs in order to make ends meet. Raising taxes makes it harder to make ends meet–thus more foreclosures, more food stamps, more homelessness. What kind of economist or humane person thinks this is a solution?
Ah, but we will tax the rich. The rich have enough money. They will simply stop earning.
Let’s get real. Here is what the government is likely to do. Once Washington realize that the dollar is at risk and that they can no longer finance their wars by borrowing abroad, the government will either levy a tax on private pensions on the grounds that the pensions have accumulated tax-deferred, or the government will require pension fund managers to purchase Treasury debt with our pensions. This will buy the government a bit more time while pension accounts are loaded up with worthless paper.
The last Bush budget deficit (2008) was in the $400-500 billion range, about the size of the Chinese, Japanese, and OPEC trade surpluses with the US. Traditionally, these trade surpluses have been recycled to the US and finance the federal budget deficit. In 2009 and 2010 the federal deficit jumped to $1,400 billion, a back-to-back trillion dollar increase. There are not sufficient trade surpluses to finance a deficit this large. From where comes the money?
The answer is from individuals fleeing the stock market into “safe” Treasury bonds and from the bankster bailout, not so much the TARP money as the Federal Reserve’s exchange of bank reserves for questionable financial paper such as subprime derivatives. The banks used their excess reserves to purchase Treasury debt.
These financing maneuvers are one-time tricks. Once people have fled stocks, that movement into Treasuries is over. The opposition to the bankster bailout likely precludes another. So where does the money come from the next time?
The Treasury was able to unload a lot of debt thanks to “the Greek crisis,” which the New York banksters and hedge funds multiplied into “the euro crisis.” The financial press served as a financing arm for the US Treasury by creating panic about European debt and the euro. Central banks and individuals who had taken refuge from the dollar in euros were panicked out of their euros, and they rushed into dollars by purchasing US Treasury debt.
This movement from euros to dollars weakened the alternative reserve currency to the dollar, halted the dollar’s decline, and financed the US budget deficit a while longer.
Possibly the game can be replayed with Spanish debt, Irish debt, and whatever unlucky country is eswept in by the thoughtless expansion of the European Union.
But when no countries remain that can be destabilized by Wall Street investment banksters and hedge funds, what then finances the US budget deficit?
The only remaining financier is the Federal Reserve. When Treasury bonds brought to auction do not sell, the Federal Reserve must purchase them. The Federal Reserve purchases the bonds by creating new demand deposits, or checking accounts, for the Treasury. As the Treasury spends the proceeds of the new debt sales, the US money supply expands by the amount of the Federal Reserve’s purchase of Treasury debt.
Do goods and services expand by the same amount? Imports will increase as US jobs have been offshored and given to foreigners, thus worsening the trade deficit. When the Federal Reserve purchases the Treasury’s new debt issues, the money supply will increase by more than the supply of domestically produced goods and services. Prices are likely to rise.
How high will they rise? The longer money is created in order that government can pay its bills, the more likely hyperinflation will be the result.
The economy has not recovered. By the end of this year it will be obvious that the collapsing economy means a larger than $1.4 trillion budget deficit to finance. Will it be $2 trillion? Higher?
Whatever the size, the rest of the world will see that the dollar is being printed in such quantities that it cannot serve as reserve currency. At that point wholesale dumping of dollars will result as foreign central banks try to unload a worthless currency.
The collapse of the dollar will drive up the prices of imports and offshored goods on which Americans are dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman Marcus.
Domestic prices will also explode as a growing money supply chases the supply of goods and services still made in America by Americans.
The dollar as reserve currency cannot survive the conflagration. When the dollar goes the US cannot finance its trade deficit. Therefore, imports will fall sharply, thus adding to domestic inflation and, as the US is energy import-dependent, there will be transportation disruptions that will disrupt work and grocery store deliveries.
Panic will be the order of the day.
Will farms will be raided? Will those trapped in cities resort to riots and looting?
Is this the likely future that “our” government and “our patriotic” corporations have created for us?
To borrow from Lenin, “What can be done?”
Here is what can be done. The wars, which benefit no one but the military-security complex and Israel’s territorial expansion, can be immediately ended. This would reduce the US budget deficit by hundreds of billions of dollars per year. More hundreds of billions of dollars could be saved by cutting the rest of the military budget which, in its present size, exceeds the budgets of all the serious military powers on earth combined.
US military spending reflects the unaffordable and unattainable crazed neoconservative goal of US Empire and world hegemony. What fool in Washington thinks that China is going to finance US hegemony over China?
The only way that the US will again have an economy is by bringing back the offshored jobs. The loss of these jobs impoverished Americans while producing oversized gains for Wall Street, shareholders, and corporate executives. These jobs can be brought home where they belong by taxing corporations according to where value is added to their product. If value is added to their goods and services in China, corporations would have a high tax rate. If value is added to their goods and services in the US, corporations would have a low tax rate.
This change in corporate taxation would offset the cheap foreign labor that has sucked jobs out of America, and it would rebuild the ladders of upward mobility that made America an opportunity society.
If the wars are not immediately stopped and the jobs brought back to America, the US is relegated to the trash bin of history.
Obviously, the corporations and Wall Street would use their financial power and campaign contributions to block any legislation that would reduce short-term earnings and bonuses by bringing jobs back to America. Americans have no greater enemies than Wall Street and the corporations and their prostitutes in Congress and the White House.
The neocons allied with Israel, who control both parties and much of the media, are strung out on the ecstasy of Empire.
The United States and the welfare of its 300 million people cannot be restored unless the neocons, Wall Street, the corporations, and their servile slaves in Congress and the White House can be defeated.
Without a revolution, Americans are history.
Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously the editor of the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.
It may be too late to fix the damage of the democrats.
http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html
Am I asking too much to vote them all out but a handful of maybe republicans and cut their salaries and stop the back door slush funds, big gov, and all of the corruption?
Duplicate thread, so I’ll copy and paste my post :)
Right up the zero’s alley. This guy wouldn’t know how to balance a budget on the Arizona border.
Been taking the "ectasty" of Empire?
Got Power?
Yoo bad. A brilliant mind warped into uselessness.
A CONTEMPORARY SAM ADAMS SPEAKS:
I have worked for a Second American Revolution since 2005 when I finally realized that compromise with the Left was impossible because they had become dominated by the Communists who had taken over the Democrat Party lock, stock and barrel.
This came after a long socialist evolution in American politics going back about 100 years. The election of Barack Obama only sealed the deal. Our federal government has become socialist, and the American Armed Forces in which I served for twenty years have become the defenders of socialism.
I think revolution is the only option for American Patriots. I realize that a majority of American do not favor taking up arms in defense of liberty at this point - They still think elections will rollback the Red Tide. It won’t. The Communists (who call themselves “Progressives”) also control Academia, Media and Business. The only means of restoration of the republic is by force of arms, since many thousands of hardcore socialists can only be removed from public life by brute force.
American Patriots are already revolutionists, this is in our DNA from the First American Revolution and the U.S. Civil War, but we must become radical republicans and rid our country of its Leftist ruling elite in the same ruthless way the French revolutionists rid their country of their reactionaries in 1789 to 1794.
It is well said that the U.S. Constitution is not a suicide pact.
Therefore, we must make total war on all types of socialists who attempt to hide behind that great document and infest our body politic. When these parasites are terminated with extreme prejudice and our Homeland is secure once again, we must launch a counter attack against all forms of world socialism and ally ourselves with the Freedom Fighters of the planet.
The Communists declared war on Freedom in 1848.
The time has come for Freedom to declare war on Communism.
http://samadams1984.blogspot.com/2010/06/forward-second-american-revolution.html
My guesstimate of the death toll of an American Civil War; 100,000,000, including 99% of all Freepers and our families.
Both.
All revolutions are bloody.
But know this: The American, French and Russian People did not start their respective revolutions - Their respective ruling classes started the revolutionary wars by oppression.
In the words of my alter ego, Rambo, “They Drew First Blood.”
WHAT "territorial expansion?" Israel isn't territorially expanding.
First part of the article had me. PCR spins off into LSDland bleating about neocons and completely scrapping the Defense budget.
Sorry, no sale.
Here is what can be done.
The wars, which benefit no one but the military-security complex and Israel’s territorial expansion, can be immediately ended. This would reduce the US budget deficit by hundreds of billions of dollars per year. More hundreds of billions of dollars could be saved by cutting the rest of the military budget which, in its present size, exceeds the budgets of all the serious military powers on earth combined.US military spending reflects the unaffordable and unattainable crazed neoconservative goal of US Empire and world hegemony.
I'm pretty sure his Thorazine shot wore off just as he started typing that.
Precisely.
Exactly right.And thanks for the pickup on that ,I was a little slow. Anybody who doesn’t talk about shrinking the size of the government workforce and its baggage is either too dumb or too dishonest to write about economics at all. And what a target rich environment it is, even this week with Congress called back to session to bailout the teachers’ unions.
Mark
The American people are voting with their wallets. The government can’t continue without funds indefinitely. Keep every dollar you can in your control and “starve the beast,” as Pres. Reagan advised.
My FRiend Sulla:
When the dogs of war are released, victory for the Constitutional faction in a civil war is not immediately inevitable; the outcome may be an American version of Oliver Cromell’s “Commonwealth” complete with a military dictator.
However, after all is said and done, restoration of the Republic under the U.S. Constitution of 1789 is as inevitable as the restoration of the Monarchy in England after the death of Cromwell. The Monarchy is in the English People’s DNA. The Republic is in the DNA of the American People.
There was a revolution, it began in 2006 and was complete on November 4, 2008. 2009 and 2010 laws were passed that will tighten their control of every aspect of our lives once they become fully effective.
Come 2013 the peasants will be rudely jolted awake as to what they did back on November 4, 2008.
Very well put. It's very encouraging to read a post like yours.
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